Financial Risk Management: Concepts and Applications

This lecture introduces the concept of risk, discussing its definition and the relationship between risk and randomness. It covers various types of financial risk, such as market risk, credit risk, operational risk, liquidity risk, and model risk. The history of risk management is explored, highlighting key events that led to the regulation of financial markets. The lecture also delves into the Basel Accords and their impact on banking supervision. The importance of managing financial risk is emphasized, focusing on the dispersion of risk to avoid systemic failures and increase shareholder value. The challenges of quantitative risk management, including extreme values, risk concentration, scale, and interdisciplinary skills, are discussed.